National Audit Office said breaches included “irregular credit guarantees”, “irregular collateral” and “fraudulent and underpayment of registered capital”.

There are growing concerns about the amount of bad loans being held by local governments.Official figures show they held debt of 10.7tn yuan ($1.7tn; £1.1tn) in 2010.

“The State Council is studying proposals to enhance local government debt management and to address fiscal and financial risks,” the audit office said in the report.
‘Again and again’
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A lot of the local debt will be absorbed by the central government”
Michael Pettis Peking University

Local governments have been borrowing money from Chinese banks to fund projects aimed at maintaining economic growth.

According to the China Banking Regulatory Commission, local governments took up 80% of total bank lending in China at the end of 2010.

However, analysts said that although the lending had helped to spur investment and boost growth, it was now weighing on local governments.

“Whenever you look at lending that spurs growth miracles, it starts off with an increasing ability to pay the debt,” Professor Michael Pettis of Peking University told the BBC.

“But in every case that ability fades. That is the process that is happening in China,” he explained. “We are going to see stories like this again and again.”
Easing burden?

In October last year, China allowed four local governments to sell bonds for the first time in 17 year. It was hoped the sale would help them pay their loans.

However, the central government put a limit on the amount of bonds the local governments could issue despite the fact that there was a lot of interest among investors.

According to the Xinhua news agency, Shanghai’s bond sale received bids for three times the amount of bonds on offer.

As a result, many of the local governments still have sizeable debts and while the central government may let them raise money, it may also have to take further measures to solve the problem, analysts said.

“A lot of the local debt will be absorbed by the central government,” said Mr Pettis of Peking University.

Total sales at the clothes retailer between 1 August and 24 December rose 3.1% compared with a year earlier, ignoring the effect of rising VAT.Next Directory sales grew 16.9%.
But its High Street business, which sees some two-thirds of sales, recorded a 2.7% fall, sending Next’s share price 4.3% lower in early London trading.Next has seen its share price rise 39% over the past 12 months, easily outperforming a 5% fall in the broader FTSE 100 index.Shares in some other big retailers also fell in the wake of Next’s announcement, which was the first trading update of the year from a major High Street chain.

Home Retail Group – owner of Homebase and Argos – dropped 4.7%, while car accessories chain Halfords was down 3%.
Profit margins
Next reconfirmed its full-year profits forecast at £565m, narrowing the range to plus-or-minus £7m.
The total sales growth figure of 3.1% was in the middle of its previous guidance of 2.5% to 4%, despite the “slightly disappointing” numbers from its 500 stores.

Next expressed uncertainty in its statement as to why the High Street performance had been so weak, particularly considering that last year’s sales had been hurt by cold weather.One possibility cited in its statement was its long-standing policy of not cutting the price of its products in the run-up to Christmas.

“Next’s own admission of disappointment is a setback to its hitherto robust growth story,” said Richard Hunter, head of equities at brokerage Hargreaves Lansdown.

“The fact that the company did not discount its products in the approach to Christmas may have been a factor, whilst the more general consumer malaise has yet to be corroborated by updates from its rivals.

“In addition, higher sales do not necessarily translate to higher profits, so the fact that the company has been able to maintain operating margins may yet play into its hands.”

Richard Perks, analyst at research firm Mintel, confirmed this view.

“These figures from Next are really pretty good I think,” he told the BBC.

“OK, Next may be – in sales terms – held back by the fact that it wasn’t discounting, but in profit terms it will be a lot better off.”

Mr Perks said he was optimistic about retail sales across the UK – predicting a 4% rise in December.

“People are reluctant to cut back any more on retail, and are cutting back elsewhere, particularly on leisure,” although he added that the rising cost of food was still crimping spending.

Next said it was cautiously optimistic about its end of season sales – which began after the end of its latest reporting period – and expected results to be slightly ahead of budget.

The retailer said it expected sales this year to be helped by a probable freeze in the price of its products.

It forecast generating £200m surplus cash in the year ahead, which it said it would return to shareholders via share buybacks.

China has denied that an Indian diplomat was mistreated during an angry court hearing in the city of Yiwu.Delhi complained after S Balachandran was reportedly denied medication when trying to secure the release of two Indians held hostage by local traders for allegedly failing to pay debts.China said media reports were “not factually accurate”.Indian media report that the two Indians are now being moved from a hotel in Yiwu to Shanghai.The two Indians had earlier told Indian television they were being treated “like animals”.On Tuesday, India warned its businessmen they were not safe to trade in Yiwu.

‘Ruled by laws’

At a press briefing China’s foreign ministry spokesman Hong Lei said: “Relevant media reports that the Indian consular official from Shanghai was forbidden from eating or taking his medication while in Yiwu and was surrounded and attacked do not accord with the facts.

“China is a country ruled by laws, which pays great attention to relations with India,” he said.

However, Mr Hong gave no specific account of what China believed had happened.

He said the two Indians had been put under police protection in a hotel and that five people had been arrested for “illegal detention”.

“China hopes that India treats this matter objectively and fairly,” he said.

China’s ambassador to India, Zhang Yan, met foreign affairs officials in Delhi on Wednesday and assured them that “serious attention” was being given to the plight of the two traders.

Later India’s NDTV channel quoted External Affairs Minister SM Krishna as saying the pair were being escorted by Indian consulate officials to Shanghai.

The businessmen, Deepak Raheja and Shyamsunder Agrawal, had pleaded for help in an earlier interview with NDTV.

Mr Agrawal said: “Please save us… get together and help us. They have stripped us, thrown things at us, beaten us, tortured us. We are being treated worse than animals.”

Their hotel had reportedly been surrounded by a large crowd of locals.

The pair had been held hostage by local traders for two weeks for non-payment of dues by their company, whose owner has allegedly fled the country.

On Tuesday, an advisory on India’s Beijing embassy website said businessmen could be “mistreated” in Yiwu and had “no guarantee of legal remedies”.

The strongly worded statement on the embassy website said that “Indian businessmen are cautioned to stay away from Yiwu”.

It added: “In case of disputes arising, experience suggests that there is inadequate protection for safety of persons.”

Delhi believes Mr Balachandran was denied medicine and collapsed in the courtroom in Yiwu on 31 December.

Mr Balachandran is a diabetic. He was taken to hospital in a semi-conscious state and later transferred to Shanghai, where he has improved.